Your friend has just received 50,000 in respect of a compensation claim for injuries sustained in a motor car accident. She has no need for the money now and decides that she wishes to invest it on the stock market. She is concerned about risk and has asked you to provide her with an overview, in writing of what risk is.

(i) Make notes of what you will cover in a letter to your friend. You should ensure that you cover the types of risk and how these might be controlled.

(ii) Your friend subsequently decides to invest the 50,000 in two stocks. She invests 12,000 in stock Y and the remainder of the money in stock Z. The expected returns on these two stocks are 16% and 20% respectively. What is the overall return your friend can expect?